Asian PX price remains above $1,000/mt, but uptrend slowing on weak demand

The outright price of Asian paraxylene has stayed above the $1,000/mt mark moving into February amid support from firm buying interest, traders and producers told S&P Global Commodity Insights, but a slowdown in trade activity and demand ahead of the Lunar New Year is reversing the uptrend seen at the start of the year.

Market sources said that this decline will continue in the near term, with further pressure from weak downstream margins, but prices are expected to rise again in Q2 on US summer demand.

Platts assessed the benchmark PX CFR Taiwan/China down $10/mt day on day at $1,025.67/mt at the Asian close Jan. 31, S&P Global data showed. PX prices had risen to a 15-week high of $1,042.67 on Jan. 23, the data showed, up $82/mt or 8.54% from when levels had bottomed out at $960.67/mt on Dec. 7.

Traders said that while PX prices had strengthened recently due to improving demand for cargoes arriving in March and April, the upward momentum had been stalled by lower operation rates among producers of downstream purified terephthalic acid, or PTA, and polyester during China's biggest holiday in early February.

"Looks like the fundamentals [for PX] are weak [so] need to see [the market] after the Chinese New Year," a trader said.

Polyester and PTA operating rates had steadily dropped in January amid the festivities-related slowdown in China, sources said.

"The PTA and polyester [markets] are also weak because of [the holiday] season. We [are] entering Chinese New Year [so] the operation rate for polyester [is] dropping a lot," a polyester producer in China said.

Polyester plant operating rates in China were around 84.6% in the week to Jan. 26, down from 88.9% in the week to Jan. 19.

Shrinking PTA margins

Weak margins for PTA producers are also adding to the pressure on buying interest, a trader with a North Asian producer said. High PX prices, low polyester operating rates and a build up of inventory in China are some of the key factors denting margins, the trader added.

Margins are currently hovering around Yuan 400, which may work for newer PTA units but are still deemed to be on the lower side, market sources said.

"New producers can operate at lower margins but [margins of around] Yuan 400/mt cannot cover the full cost," the trader in North Asia said.

At the Asian close Jan. 31, the spread between PTA domestic China ex-tank and paraxylene East China Domestic marker was assessed at Yuan 469.45/mt, S&P Global data showed.

As demand in China remains thin, PTA makers are less likely to sign contracts with PX producers in South Korea and Japan and instead seek to buy PX domestically, the trader in North Asia said.

Expectations of refinery turnarounds in Japan and South Korea in the second quarter will also shape buying decisions for PTA producers, the trader added.

PTA producers also have bigger concerns as more PTA capacity is set to emerge in China, market sources said.

Taiwan's Formosa Chemicals & Fiber Corp. is expected to start its 1.5 million mt/year PTA plant in Ningbo in March while Sinopec's Yizheng PTA plant with a capacity of 3 million mt/year may also commence operations around the same time, traders said.

Positive Q2 outlook

Despite all the short term concerns, Q2 still holds promise for PX prices, a trader in Japan said.

The upcoming US summer driving season will be a big factor which could boost demand for Asian aromatics including PX for blending into gasoline, the trader said.

"Basically, in the summer time there is some demand coming up for gasoline," the trader added.

A trader with a Middle East producer also expected bullishness stemming from gasoline demand with an expected pivot to more gasoline production over the next few months.

"Going into March-April, will run minimal [production rates for aromatics]. Now that the gasoline/naphtha spread [has] improved, I think very soon [it] will be gasoline in focus," the trader said.

In January, the gasoline 92 RON FOB Singapore-Naphtha FOB Singapore spread averaged $20.49/b, wider by 25.39% from an average of $16.34/b in December, data from S&P Global showed.